… who will be next to join the Trillion Dollar Club after Apple? How will Apple fare after this humongous market cap? Will the law of large numbers finally set in and put a ceiling on the stock price? Are these TDCs (Trillion Dollar Companies) no longer growth companies and will be deemed as Value plays? Most important is should we continue to be invested in these TDCs or is the easy money already made?
All the above questions are interesting but for most it is difficult to even fathom what it really means by hitting a Trillion Dollar. To start with, I happen to ask my daughter, “How may zeroes are there in a Trillion?” and it took a while before we counted all the twelve zeroes! Anyways, lets start with the recently crowned King – Apple. Apple hit the Trillion Dollar mark when the stock price screamed past 207.05. Cheers went out and it was nothing less than watching a Lunar eclipse! I chose to focus on the trading screen and ended up selling some upside calls on AAPL (I firmly believe that once the baby is born, excitement is gone). Ok, so what next? Who is the next candidate? Amazon, Google, Microsoft all are in the 800B market cap range with Amazon leading the pack, Google a close second followed by Microsoft. No doubt all three will reach the trillion dollar market cap some day but will this Companies continue to grow or cave in to the “Value” bucket? Amazon, the disruptor, always enjoy the high valuation and is squarely in the Growth bucket. Google is a very interesting growth and a value play at the same time. Microsoft is more of a long term value play but continues to grow in the Cloud space. By the way, all three of them have stalled after reporting stellar second quarter earnings so why would Apple be any different? We see all kinds of targets for Apple, all the way up to 300 but it might be at a much slower rate. Company buybacks will cease/slow down, Warren Buffet already has a truck load (75M shares), everyone else who ever wanted to invest in Apple is already in so what is the next catalyst? Agreed that Apple is a massive cash generator machine but what stops China from slapping tariffs on iPhones? That in itself will dent the iPhone numbers going forward and bring the growth to a screeching halt. Analyst keep touting the growing service business as an alternative source of revenue but that is a commodity business at best and would not enjoy the great margins that Apple gets from iPhones. I am not an Apple Bear but one needs to be cognizant of all these facts. Apple may move sideways in the short term and that motivated me to sell upside calls against my position.
Lastly, no one knew 40 years back if Apple would hit a Trillion dollars when Steve jobs rolled out the first Apple Computer from his Palo Alto garage. So lets ask ourselves today, who will be the first “Trillionaire” and when? Bezos, Buffet, Bill, Mark, Carlos…this definitely is a Trillion Dollar question!